Technical Notes

These technical notes provide background information about the source data and estimating methods used to produce the estimates presented in the GDP news releases; these notes also provide some perspective on the estimates. Additional material will become available in the next several days; much of it will be posted to BEA's web site <http://www.bea.gov>. In a few weeks, the estimates will be published in BEA's journal, the Survey of Current Business. The Survey also will provide a more detailed analysis of the estimates ("The Business Situation").

Revised GDP, Corporate Profits, and GNP

Real GDP: Real GDP is now estimated to have increased 3.7 percent in the third quarter of 1998, 0.2 percentage point less than the preliminary estimate of 3.9 percent. Real GDP increased 1.8 percent in the second quarter.

As in the advance and preliminary estimates, the major contributors to the third-quarter increase in real GDP--consumer purchases of services and inventory investment (primarily motor vehicles). The increase in real GDP was moderated by a decrease in exports of services and an increase in imports of goods.

Also as in the advance and preliminary estimates, the step-up in real GDP growth from the second to the third quarter was more than accounted for by an upturn in inventory investment. Final sales of domestic product--GDP less change in business inventories--increased 2.8 percent in the third quarter after increasing 4.6 percent in the second.

The estimate of the price index for gross domestic purchases is now estimated to have increased 0.7 percent, 0.2 percentage point more than the preliminary estimate of 0.5 percent. In the second quarter, the price index increased 0.4 percent.

Corporate Profits: The revised estimate of profits from current production increased $6.4 billion, after decreasing $8.6 billion in the second quarter. The third-quarter estimate was $3.1 billion higher than that reported in last month's preliminary estimate. The revision was more than accounted for by an upward revision of $5.7 billion to profits received from abroad by U.S. companies; domestic profits of financial corporations were revised down by $2.6 billion.

According to the revised estimate, profits from current production increased 0.8 percent (at a quarterly rate) in the third quarter, after decreasing 1.0 percent in the second. Compared with current-production profits in the third quarter a year ago, profits in the third quarter of 1998 decreased 1.7 percent. The current-production measure differs from profits as they are usually reported in corporate financial statements. First, the current-production measure excludes non- operating items, such as special charges and capital gains net of losses. Second, the current- production measure is based on replacement-cost estimates of inventory withdrawals and depreciation rather than on historical-cost values.

Gross national product: Growth in real gross national product (GNP) in the final estimate of the third quarter was 3.3 percent, the same as in the preliminary estimate; in the second quarter, real GNP had grown 1.7 percent. GNP equals GDP plus incomes, mainly profits and other investment income, earned abroad by U.S. residents less similar incomes earned by foreign residents. The difference between the revisions to real third quarter GNP and GDP is the upward revision to incomes earned abroad, which is not a component of GDP.

Sources of Revision to Real GDP

The 0.2-percentage point downward revision to third-quarter real GDP growth is slightly below the 0.3-percentage point average revision--without regard to sign--between the preliminary and final estimates over the past 20 years. (See the table of revisions to real GDP estimates below.)

Today's revision to real GDP reflects relatively small revisions to the source data underlying a number of GDP components. A downward revision to exports and an upward revision to imports reflected revised BEA and Census source data for July through September. These revisions more than offset upward revisions to private nonresidential and residential structures that reflected revised Bureau of the Census data on construction put in place for August and September. In addition, upward revisions to prices for consumer spending for services and for residential structures contributed to the downward revision to real GDP; these revisions reflected newly available price data from the Department of Transportation (airline transportation) and from the Bureau of the Census (single-family structures).

Summary of revisions to real GDP estimates, 1978-97 (percent changes at annual rate)
____________________________________________________________________________________
                                                                Range
                                    Average         ________________________________
Quarterly estimates                 without         Two-thirds         Nine-tenths
      compared                      regard              of                 of
                                    to sign         revisions           revisions
____________________________________________________________________________________
                                             
                                 Current-dollar GDP
                                 ___________________________________________________

Advance to preliminary..........       0.6         -0.5 to 0.8        -1.1 to 1.4
Advance to final................        .7          -.6 to 1.0        -1.0 to 1.6
Preliminary to final............        .3          -.3 to  .4         -.6 to  .7 

                                 Real GDP
                                 ___________________________________________________

Advance to preliminary...........       0.5        -0.5 to 0.7        -0.9 to 1.4
Advance to final.................        .6         -.6 to  .9        -1.0 to 1.3
Preliminary to final.............        .3         -.4 to  .4         -.5 to  .7
____________________________________________________________________________________

Robert P. Parker
Chief Statistician
Bureau of Economic Analysis
202-606-9607